Why in the News?

 

• India’s Interim Budget for 2024-2025 was presented in February 2024 and has been in the news for several reasons:

 

• • Upcoming elections: The current government is nearing the end of its term, with general elections expected in 2024. As per tradition, an interim budget is presented in such cases to bridge the gap until the new government takes office and presents its full budget.

• • Focus areas: The budget prioritized key areas like infrastructure development, agriculture, and social welfare schemes, attracting interest from various stakeholders like investors, farmers, and beneficiaries of social programs.

• • Economic implications: The budget’s impact on economic growth, inflation, and job creation is being debated and analyzed by economists and financial experts.

 

What is an Interim Budget?

 

• • An interim budget is a temporary financial plan presented by a government during a transition period, typically before general elections. It authorizes government spending for a limited period, usually the first few months of the financial year, until the newly elected government presents its full budget.

 

Simple Example:

 

• • Imagine you’re planning a party, and the main organizer suddenly has to leave before the final preparations. An interim budget is like that temporary organizer who takes over, making sure the essentials are covered until the main person returns.

• • In India, an interim budget is presented when there’s a change in government or the upcoming election schedule doesn’t allow for a full-fledged budget before the end of the financial year (March 31st). It basically keeps the government running without making major changes until the new government presents its own budget later.

 

How is it different from the main budget?

 

• • Think of the main budget as the detailed party plan, outlining everything – the guest list, food, decorations, and entertainment. The interim budget, on the other hand, is more like a simplified shopping list, ensuring essentials like food and drinks are bought without making any fancy additions.

 

Key Differences from the Main Budget:

• • Scope: An interim budget is narrower in scope, focusing on essential expenditures and avoiding major policy changes. The main budget, presented after elections, provides a more comprehensive roadmap for the entire fiscal year with new policies and initiatives.

• • Duration: An interim budget typically covers a shorter period, often three months, while the main budget covers the entire financial year (April 1 to March 31).

• • Approvals: An interim budget doesn’t require approval for new taxes or changes in existing ones. The main budget undergoes a complete parliamentary approval process.

 

Historical Background:

 

Interim budgets have been a part of India’s financial system since independence. Some notable examples include:

 

• • 1991: Presented by Manmohan Singh during a period of economic crisis, it laid the foundation for economic reforms.
• • 2014: Presented by P. Chidambaram after the Narendra Modi government came to power, it focused on infrastructure development and fiscal consolidation.
• • 2019: Presented by Piyush Goyal after the BJP’s re-election, it introduced tax cuts and social welfare schemes.

 

Where does the Interim Budget appear in the Indian Constitution?

 

• • Interestingly, there is no specific article in the Indian Constitution that explicitly mentions or defines the interim budget. While the Constitution outlines the budgetary process and empowers the Parliament to approve the budget, it doesn’t directly address the concept of an interim budget.

 

Here’s a breakdown of relevant constitutional provisions:

 

• • Article 112: This article mandates the government to present the annual financial statement, which details the estimated receipts and expenditures for the upcoming financial year, to both houses of Parliament before the start of the fiscal year (April 1st).

• •  Article 114: This article empowers the Parliament to vote on the budget estimates and authorize the government to withdraw funds from the Consolidated Fund of India for approved expenditures.

 

However, neither of these articles specifically mention interim budgets. Their focus is on the regular annual budget presented before the start of the financial year.

So, why do interim budgets exist despite not being explicitly mentioned in the Constitution?

 

• The practice of interim budgets in India arises from practical considerations and conventions rather than direct constitutional provisions. Here’s why:

 

• • Elections: If elections fall close to the budget presentation date, presenting a full annual budget can be impractical due to the uncertainty of the new government’s policies.

• • Government Transitions: In rare instances like dissolution of the elected government or a prolonged period without a stable government, an interim budget might be needed to ensure financial continuity.

 

In these scenarios, the government utilizes its executive powers and established budgetary practices to present an interim budget, keeping in mind:

 

• • Constitutional principles: While there’s no explicit mention, the interim budget adheres to the broader principles of financial accountability and transparency enshrined in the Constitution.

• • Parliamentary approval: Similar to a regular budget, the interim budget requires approval from both houses of Parliament, ensuring democratic oversight and adherence to budgetary procedures.

• • Limitations: The interim budget avoids major policy changes or populist initiatives to minimize interference with the incoming government’s economic agenda.

Therefore, while the interim budget isn’t directly mentioned in the Indian Constitution, it exists as a practical solution based on established conventions and executive powers, operating within the broader framework of constitutional principles and parliamentary approval.

QuizTime:

 

Mains Questions:

Model Answer:

An interim budget serves as a temporary financial measure when the presentation of a regular budget is not feasible due to upcoming elections or government transitions.

Need:

• • Continuity: Ensures smooth financial operations during political transitions.
  • Avoidance of policy vacuum: Provides a framework for essential spending until the new government takes over.
  • Economic stability: Maintains investor confidence and prevents disruptions in markets.

 

Implications:

• • Limited scope: Focuses on maintaining existing schemes, hindering major reforms or new initiatives.
  • Reduced accountability: The elected government gets limited control over financial decisions.
  • Potential for populism: May tempt the outgoing government to announce crowd-pleasing measures without long-term impact.

 

Compromise on elected government’s role:

• • The interim budget restricts the incoming government’s ability to set its own economic agenda immediately.
    It might inherit policies and spending priorities not aligned with its vision, leading to delays in implementing its own plans.

 

However, the limitations of an interim budget can be mitigated through:

• • Transparency and clarity: Clear communication of the budget’s temporary nature and limitations.
  • Minimal changes: Avoiding major policy shifts or populist announcements.
  • Consultation with incoming government: Seeking input from the soon-to-be elected representatives during the budget preparation process.

In conclusion, while an interim budget is necessary for financial continuity during political transitions, it is crucial to recognize its limitations and ensure transparency to minimize its impact on the incoming government’s economic agenda.

Model Answer:

Objectives:

• • Regular budget: Aims to set the economic direction for the entire year, focusing on reforms, new initiatives, and resource allocation based on long-term goals.
  • Interim budget: Primarily ensures continuity in essential spending and avoids major changes until the new government takes over.

 

Challenges:

• • Regular budget: Balancing short-term needs with long-term goals, managing fiscal deficit, and addressing economic uncertainties.
  • Interim budget: Maintaining financial stability under limited time and resources, avoiding policy overreach, and ensuring fairness in the election process.

 

Similarities:

• • Both require accurate economic data analysis and stakeholder consultations.
  • Both undergo parliamentary scrutiny and approval.
  • Both aim to achieve financial sustainability and economic growth.

 

Differences:

• • Scope: Regular budget has a broader scope for policy changes and reforms, while the interim budget is more limited.
  • Timeframe: Regular budget covers a full year, while the interim budget covers a shorter period.
  • Flexibility: Regular budget allows for more flexibility in resource allocation and policy adjustments, while the interim budget has stricter limitations.

In conclusion, both regular and interim budgets play vital roles in India’s financial management. While they differ in objectives, challenges, and scope, understanding these nuances is crucial for effectively analyzing and participating in the budgetary process.

Remember: These are just sample answers. It’s important to further research and refine your responses based on your own understanding and perspective.